In January 2014, Khors Company Issues Nonqualified Stock Options to Its

question 9

Multiple Choice

In January 2014, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2015, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2015, what is the nature of the book-tax difference due to the options exercised?

• A) Favorable and temporary
• B) Favorable and permanent
• C) Unfavorable and temporary
• D) Unfavorable and permanent
• E) Not enough information to determine.

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Definitions:

Sampling Distribution

The probability distribution of a given random sample-based statistic.

Sample Statistics

Measures or values calculated from a sample of data used to estimate population parameters.

Population Parameters

Quantitative characteristics or attributes defining a whole population, such as mean or standard deviation.

Sampling Distribution

The sampling distribution is a probability distribution of a statistic obtained through a large number of samples drawn from a specific population.